Diversification can be a response to both opportunities and threats.
Opportunities •
Changing consumer demand. As consumers in developing countries have become richer, food consumption patterns have changed noticeably. People have moved away from a diet based on staples to one with a greater content of animal products (meat, eggs, and dairy) and fruits and vegetables. In turn, more dynamic farmers are able to diversify to meet these needs. There is a possibility that this trend will be reversed in future given increasing consumer concern about the
environmental impact of meat production. •
Changing demographics. Rapid
urbanization in developing countries affects consumption patterns. Moreover, a smaller number of farmers, in percentage terms at least, has to supply a larger number of consumers. While this may not imply diversification it does require adaptation to new farming techniques to meet higher demand. •
Export potential. Developing country farmers have had considerable success by diversifying into crops that can meet export market demand. While concern about
food miles, as well as the cost of complying with
supermarket certification requirements such as for
GlobalGAP may jeopardize this success in the long run, there remains much potential to diversify to meet export markets. •
Adding value. The pattern witnessed in the West, and now becoming widespread in developing countries, is for consumers to devote less and less time to food preparation. They increasingly require ready-prepared meals and labour-saving packaging, such as pre-cut
salads. This provides the opportunity for farmers to diversify into value addition, particularly in countries where supermarkets play a major role in
retailing. •
Changing marketing opportunities. The changing of government policies that control the way in which farmers can link to markets can open up new diversification possibilities. For example, in
India, policy changes to remove the monopoly of state "regulated markets" to handle all transactions made it possible for farmers to establish direct
contracts with buyers for new products. •
Improving nutrition. Diversifying from the
monoculture of traditional
staples can have important nutritional benefits through more diverse diets which lead to better nutrient intake and health.
Threats •
Urbanization. This is both an opportunity and a threat, in that the expansion of cities places pressure on land resources and puts up the value of the land. If farmers are to remain on the land they need to generate greater income from that land than they could by growing basic staples. This fact, and the proximity of markets, explains why farmers close to urban areas tend to diversify into high-value crops. •
Risk. Farmers face risk from bad weather and from fluctuating prices. Diversification is a logical response to both. For example, some crops are more drought-resistant than others, but may offer poorer economic returns. A diversified
portfolio of products should ensure that farmers do not suffer complete ruin when the weather is bad. Similarly, diversification can manage price risk, on the assumption that not all products will suffer low prices at the same time. In fact, farmers often do the opposite of diversification by planting products that have a high price in one year, only to see the price collapse in the next, as explained by the
cobweb theory. •
External threats. Farmers who are dependent on exports run the risk that conditions will change in their markets, not because of a change in consumer demand but because of policy changes. A classic example is the
Caribbean banana industry, which collapsed as a result of the removal of
quota protection on EU markets, necessitating diversification by the region's farmers. •
Domestic policy threats. Agricultural production is sometimes undertaken as a consequence of government
subsidies, rather than because it is inherently profitable. The reduction or removal of those subsidies, whether direct or indirect, can have a major effect on farmers and provide a significant incentive for diversification or, in some cases, for returning to production of crops grown prior to the introduction of subsidies. •
Climate change. The type of crop that can be grown is affected by changes in temperatures and the length of the growing season. Climate change could also modify the availability of water for production. Farmers in several countries, including
Canada,
India,
Kenya,
Mozambique, and
Sri Lanka have already initiated diversification as a response to climate change. Government policy in Kenya to promote crop diversification has included the removal of subsidies for some crops, encouraging land-use zoning and introducing differential land tax systems. ==Paths for diversification==